03.02.202113:50 Forex Analysis & Reviews: EUR/USD. Market reaction to the flow of statistical data, as well as an overall view of the trend

The eurozone economy contracted less than expected at the end of last year, although it remains on the brink of a double recession amid the slow roll-out of coronavirus vaccines.

The GDP statistics released yesterday reflected the acceleration of the decline from -4.3% to -5.1% against the forecast of -6.0%.

Germany and Spain published unexpected data on economic growth last week. Earlier on Tuesday, Italy reported a 2% cut.

The economy is avoiding a recession of the magnitude seen at the start of the pandemic as businesses find ways to deal with the restrictive measures imposed. However, the immediate outlook remains challenging with the chaotic start of vaccination, which means that restrictive measures will continue.

What happened on the trading chart, as well as the reaction of the European currency to the publication of statistical data?

The analysis should start with the fact that there is a medium-term upward trend in the market, in the structure of which a corrective move from the high of 1.2349 arose. A correction in the euro is considered not just a reasonable phenomenon, but a long-awaited one, since the overbought level of the single currency in early January was so high that many foreshadowed a collapse.

Regarding the dynamics of the euro at the time of the publication of statistical data on GDP, one can see that synchronously with the release of the indicator, the European currency went down, breaking through the important price area of 1.2050 / 1.2070, eventually fixing itself below it and heading towards the psychological level of 1.2000.

We have a prolongation of the correction after a two-week stop, where the remarkable moment is not even due to the resumption of the correction, but the fact that the downward movement coincides with the execution of the "Head and Shoulders" chart pattern.

* The "Head and Shoulders" pattern is clearly visible in the four-hour period.

The 1.2050 / 1.2070 area served not just as a pivot point in the market, but as a conditional neckline of a graphical figure. Its breakdown indicates the prevailing downward interest in the market, which, together with the data on the overbought euro and the trend maximum, may signal a further weakening of the European currency. In simple words, about a reversal with a transition to an elongated correction.

Now we turn to the current day, where the data on the inflation rate in Europe has already been published, which shocked investors and traders. So, expectations for inflation already roared unrealistic growth to us after a five-month deflation rate of -0.3%, as a result, inflation did not just grow, it flew into space. I reflect the level of 0.9%, the forecast was 0.5%.

This not only changes the alignment of the game, it changes absolutely everything, including the course of the monetary policy of the European Central Bank. Let me remind you that the regulator previously aimed at the level of up to 2.0%, but at such a rate their views will be revised.

The market is in shock, we have just discussed the prospects for a decline, and now, taking into account the data on inflation, the situation is changing.

Traders are confused about the downward trend, where, with the current realities, the psychological level of 1.2000 can already play a full-fledged role of support, even though just recently we passed the long-playing area of 1.2050 / 1.2070, which should have accelerated sellers and increased the volume of short positions.

Now you should not rush and prematurely break into the market, wait a while, let the comprehension come. Several scenarios are worth considering as trading ideas.

The first considers the data on inflation as a stimulus for the growth of the euro, where the psychological level of 1.2000 plays the role of support. Holding the price higher than 1.2050 will open the way towards 1.2150-1.2200.

The second scenario assumes that traders will be skeptical about the cosmic rise in inflation, which will eventually lead to a new round of weakening in the euro. In this case, wait for the price to stay below 1.1990 for a four-hour period, which in the long term will open the way in the direction of 1.1900-1.1810.

Indicator analysis

Analyzing different sectors of timeframes (TF), it can be seen that the indicators of technical instruments, since they have overcome the long-playing area of the support 1.2050 / 1.2070, unanimously signal a sell.

Weekly volatility / Volatility measurement: Month; Quarter; Year

The volatility measurement reflects the average daily fluctuations, calculated per Month / Quarter / Year.

(February 3 was built taking into account the time of publication of the article)

The dynamics of the current time is 40 points, which is 48% below the average. Traders are a little shocked, but speculators can play on this, so one should not exclude acceleration in the market

Key levels

Resistance zones: 1.2050 **; 1.2190 *; 1.2350 **; 1.2450 **; 1.2550 ***; 1.2825.

Support zones: 1.2000 ***; 1.1890-1.1900-1.1920 **; 1.1810 *.

* Periodic level

** Range level

*** Psychological level